After a marathon markup last week, a number of bills targeting Big Tech’s size and power, including the critical ACCESS Act, were passed out of committee and now await a vote by the entire House of Representatives. This week, decisions by a federal court tossing out both the Federal Trade Commission’s (FTC) antitrust complaint against Facebook and a similar one brought by 48 state Attorneys General, underscore why we need those new laws.
The federal court in DC ruled narrowly that the FTC hadn’t included enough detail in its complaint about Facebook’s monopoly power, and gave it 30 days to do so. That alone was troubling, but probably not fatal to the lawsuit. A more ominous problem came in what lawyers call dicta: the court opined that even if Facebook had monopoly power, its refusal to interoperate with competing apps was OK. This decision highlights many of the difficulties we face in applying current antitrust law to the biggest Internet companies, and shows why we need changes to the law to address modern competition problems caused by digital platform companies like Facebook.
When the FTC filed its suit in December 2020, and 48 U.S. states and territories filed a companion suit, we celebrated the move, but we predicted two challenges: 1) proving that Facebook has monopoly power and 2) overcoming Facebook’s defenses around preserving its own ability and incentives to innovate. Yesterday’s decision by Judge James E. Boasberg of the Federal District Court for D.C. touched on both of those.
What Is Facebook, Exactly?
To make a case under the part of antitrust law that deals with monopolies—Section 2 of the Sherman Act—a plaintiff has to show that the accused company is a monopoly, legally speaking, or trying to become one. And being a monopoly doesn’t just mean being a really large company or commanding a lot of public attention and worry. It means that within some “market” for goods or services, the company has a large enough share of commerce that the prices it charges, or the quality of its products, aren’t constrained by rivals. Defining the market is a hugely important step in monopoly cases, because a broad definition could mean there’s no monopoly at all.
Judge Boasberg accepted the FTC’s market definition for social networks, at least for now. Facebook argued that its market could include all kinds of communications tools that don’t employ a “social graph” to link each user’s personal connections. In other words, Facebook argued that it competes against lots of other communications tools (including, perhaps, telephone calls and email) so it’s not a monopolist. Judge Boasberg rejected that argument, ruling that the FTC’s definition of “personal social networks” as a unique product was at least “theoretically rational.”
But the judge also ruled that the FTC hadn’t included enough detail in its complaint about Facebook’s power within the social network market. While the FTC alleged that Facebook controlled “in excess of 60%” of the market, the agency didn’t say anything about how it arrived at that figure, nor which companies made up the other 40%. In an “unusual, nonintuitive” market like social networks, the judge said, a plaintiff has to put more detail in its complaint beyond a market share percentage.
Even though market definition questions are often the place where a monopoly case lives or dies, this issue doesn’t seem to be fatal to the FTC’s case. The agency can probably file an amended complaint giving more detail about who’s in the social networking market and how big Facebook’s share of that market is. Alternatively, the FTC might allege that Facebook has monopoly power because it has repeatedly broken its public promises about protecting users’ privacy, and otherwise become even more of a surveillance-powered panopticon, without losing any significant number of users. This approach is equivalent to alleging that a company is able to raise prices without losing customers—a traditional test for monopoly power.
The case has a long way to go, because the FTC (and the states) still have to prove their allegations with evidence. We can expect a battle between expert economists over whether Facebook actually competes with LinkedIn, YouTube, Twitter, email, or the comments sections of newspaper sites. But in the meantime, the case is likely to clear an important early hurdle.
Interoperability is Not Required – Even for a Monopolist
Another part of the court’s decision is more troubling. Facebook doesn’t allow third-party apps to interoperate with Facebook if they “replicate Facebook’s core functionality”—i.e. if they compete with Facebook. The FTC alleged that this was illegal given Facebook’s monopoly power. Judge Boasberg disagreed, writing that “a monopolist has no duty to deal with its competitors, and a refusal to do so is generally lawful even if it is motivated . . . by a desire ‘to limit entry’ by new firms or impede the growth of existing ones.” A monopolist’s “refusal to deal” with a competitor, wrote the judge, is only illegal when the two companies already had an established relationship, and cutting off that relationship would actually hurt the monopolist in the short term (a situation akin to selling products at a loss to force a rival out of business, known as “predatory pricing.”). Facebook’s general policy of refusing to open its APIs to competing apps didn’t fit into this narrow exception.
This ruling sends a strong signal that the FTC won’t be able to use its lawsuit to compel Facebook to allow interoperability with potential competitors. This decision doesn’t end the lawsuits, because Judge Boasberg ruled that the FTC’s challenge to Facebook’s gobbling up potential rivals like Instagram and WhatsApp was valid and could continue. Cracking down on tech monopolists’ aggressive acquisition strategies is an important part of dealing with the power of Big Tech. But the court’s dismissal of the interoperability theory is a significant loss.
We hope the FTC and the states appeal this decision at the appropriate time, because the law can and should require companies with a gatekeeper role on the Internet to interoperate with competing applications. As we’ve written, interoperability helps solve the monopoly problem by allowing users to leave giant platforms like Facebook without leaving their friends and social connections behind. New competitors could compete by offering their users better privacy protections, better approaches to content moderation, and so on, which in turn would force the Big Tech platforms to do better on these fronts. This might be possible under today’s antitrust laws, particularly if courts are willing to adopt a broader concept of “predatory conduct” that encompasses Big Tech’s strategy of foregoing profits for many years while growing an unassailable base of users and their data—an approach that incoming FTC chair Lina Khan suggested in her seminal paper about Amazon. We hope the FTC pursues an interoperability solution and doesn’t let this important part of the case fade away.
But we shouldn’t bet the future of the Internet on a judicial solution, because Judge Boasberg’s ruling on interoperability in this case is no outlier. Many courts, including the Supreme Court, have generally been comfortable with monopolists standing at the gates they have built and denying entry to anyone who might one day threaten their power. We need a change in the law. That’s why EFF supports the ACCESS Act, which the House Judiciary Committee approved last week with bipartisan support. ACCESS will require the biggest online platforms to interoperate with third-party apps through APIs established by technical committees and approved by the FTC, while still requiring all participants to safeguard users’ privacy and security.
We’re pleased to see the antitrust cases against Facebook continue, and we trust that the FTC attorneys under Lina Khan will give it their all, along with the states who continue to champion users in this fight. But we’re worried about the limitations of today’s antitrust law, as shown by yesterday’s decision. The ACCESS Act, along with the other Big Tech-related bills advanced last week and similar efforts in the Senate, are badly needed.
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June 30, 2021 at 11:58AM
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